The RBI has increased repo rate by 50 bps, the third consecutive rate hike in the last two months, thus signaling an end to the all-time low-interest rates regime. While the move was taken up as a pertinent measure to curb rising inflation, it has created ripples of apprehension in the real estate industry. This development has come at a time when the industry was just about coming out of the COVID-19 crisis, finding its footing after a prolonged spell of market gloom. The current situation, marked by global headwinds from geopolitical conditions impacting the supply chain ecosystem, and the rising cost of construction raw materials, already portend an uneasy road ahead for the industry.
The housing market is expected to bear the major brunt of the repo rate increase. The residential market had picked up substantial momentum in the past 18 months, with the first half of the year 2022 seeing sales recorded at around 1.6 lakh units, buoyed largely by the RBI’s stand of keeping repo rates unchanged. Majority of the new residential launches and sales during the pandemic period was observed in the affordable and mid-segment budget categories. With home loan EMIs set to increase in tandem with the repo rate increase, prospective buyers might be compelled to reconsider their buying decisions. Additionally, the rising cost of construction would induce developers to increase the price of their products, further impacting home buyers and leading market sentiments to somewhat decline in due course.
On the other hand, while real estate market faces an imminent trickle-down effect of the repo rate, it is equally important that the economy continues to grow in a stable and inclusive manner. This increase is a critical step towards controlling liquidity circulation in the economy, which, in the medium term, would expectedly lead to relative stability, provided that the current uncertainty arising out of geopolitical situation subsides.
